Chinese fail in bid to challenge local law

The High Court has rejected an attempt by a Chinese company to challenge Australia’s enforcement of an international arbitration award on constitutional law grounds.

International arbitration has risen in prominence as companies seek faster, cheaper and territorially neutral alternatives to the world’s courts.

Australia, particularly Sydney, has been promoting itself as an attractive location for arbitration matters given its respected and robust justice system. A successful challenge to Australia’s arbitration system would have had serious consequences for local industry.

The court unanimously dismissed a claim by TCL Air Conditioner that judges of the Federal Court could not enforce an arbitral award made against it as that would breach Chapter III of the Constitution.

TCL had an agreement with distributer Castel Electronics that provided for disputes to be resolved through arbitration. When an arbitration occurred and Castel was awarded a sum of money, it had to enforce the award in the Federal Court when it was not paid.

TCL asked the High Court to restrain the Federal Court’s judges from enforcing the award. It argued the UNCITRAL model law for international commercial arbitration, which is supported by Australian legislation, allowed for the exercise of judicial power and was contrary to the constitution.

The court found that an arbitral award made in a private arbitration “does not involve any impermissible delegation of federal judicial power".

Finding reassures business

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Chief Justice
Robert French
and Justice
Stephen Gageler
said in a joint judgment that “the plaintiff’s argument that the conferral of jurisdiction on the Federal Court in an application under ... the Model Law is incompatible with Chapter III of the Constitution and has no merit".

“The inability of the Federal Court, as a competent court under Arts 35 and 36 of the Model Law, to refuse to enforce an arbitral award on the ground of error of law appearing on the face of the award does nothing to undermine the institutional integrity of the Federal Court," they said.

Australian Centre for International Commercial Arbitration president Doug Jones said the decision would reassure business of Australia’s “first-rate legal and regulatory infrastructure that is pro-arbitration, pro-enforcement and cost-effective".

Castel managing director
Michael Kwong
said TCL is yet to pay the award, but the decision would give confidence to parties to international contracts.